Our Proxy Voting Snapshot 2022 showed that, of the big five investors, JPMorgan matched with ISS the most (90.6%).

Do you expect it to top the list again next year? 

55% - Yes
20% - No
25% - Too early to tell

With economic instability, a global energy crisis, and an increasingly vocal anti-ESG movement to contend with, the recent proxy season taught investors to expect the unexpected.

And yet, despite the challenges investors and issuers alike were forced to confront, shareholders remained more determined than ever to hold companies to account on their ESG commitments, as highlighted in Insightia's new report, The Proxy Voting Annual Review 2022.

The report, which draws on more than 24.9 million votes imported into Insightia's database for the 2022 proxy season, explores how ESG shareholder proposals stepped away from the spotlight this season, as investors encouraged companies to cautiously navigate the ongoing market turbulence.

Average support for board diversity reporting proposals declined by more than 45 percentage points, the report reveals. Environmental shareholder proposals suffered a similar fate, with the 30 climate change reporting proposals subject to a vote at U.S.-listed companies winning 30.8% average support, almost half the 50.1% average one season prior.

"Investors were hesitant to push oil & gas companies to strengthen climate commitments," the report reads. "This was especially evident at ConocoPhillips, where a climate reporting proposal won 41.7% support this season, compared to 80.3% support a year prior. Similar circumstances presented themselves at fellow oil majors ExxonMobil and Chevron."

The anti-ESG movement also operated with renewed vigor. In recent months, Louisiana, West Virginia, and Texas are just a handful of the states that have taken steps to limit the ability of fund managers to take ESG considerations into account when making investments.

And yet, despite the unexpected circumstances presented this season, shareholders found new ways in which to hold companies to account on their ESG engagements.

Leading fund managers opted to use votes against management to make their concerns known, particularly votes against relevant nominating, climate, and compensation committee members responsible for ESG oversight. State Street Global Advisors (SSGA) supported 84.7% of director elections globally this season, compared to 96.2% a season prior.

"Shareholders elect directors as their representative to set and oversee strategy," Benjamin Colton, global head of asset stewardship at SSGA, told Insightia in an interview for the report.

"While precatory shareholder proposals are important for raising awareness, the director vote is, therefore, the single most effective tool that we have in our proxy voting toolbox."

Declining support was especially evident among the Russell 3000, where 65 directors failed to receive majority support, up from 53 and 62 both seasons prior, according to Insightia's Voting module.

Despite the lull in support for environmental and social (E&S) proposals this season, issuers should prepare for an onslaught of more carefully crafted and targeted ESG proposals next season. As Emmanuelle Palikuca at Alliance Advisors explores in the report, environmental proposals will become "more nuanced as investors are becoming well-versed in the technicalities and intricacies of corporate net-zero commitments and Paris Agreement goals."

ShareAction's Isabelle Monnickendam agreed, noting that the "growing salience of the intersectionality of E&S issues [in shareholder proposals] may prove to be a highlight of the 2023 proxy voting season."

"Proposals have powerful potential to drive effective change through holistic action and investors have a clear role in supporting the passage of these resolutions," Monnickendam said. "Whether they do or don't may prove to be crucial to overcoming E&S challenges and securing a wealthy future for all."

U.S. companies will be forced to set out the circumstances in which they will claw back compensation from senior executives, as well as disclosing any remedial action, under a new Securities and Exchange Commission (SEC) rule approved this week.

The clawback proposal, which was part of the Dodd-Frank Act of 2010 and had been stalled since 2015, is the second big remuneration-related reform of the year, following the "pay for performance" disclosures that were approved in August. And they could be one of the last reforms before the midterm elections, which are expected to give Washington D.C. a more Republican complexion that could challenge the SEC’s radical agenda – including potential upcoming votes on carbon emission and human capital management reporting.

Although many companies have voluntarily adopted clawback policies in recent years, the rule codifies and standardizes practice through the market, setting minimum standards for the types of clawbacks companies must consider and potentially filling in gaps at the smaller end of the market. 

Under the new rule, pay will be reclaimable for up to three years prior to an accounting restatement and any clawbacks will be disclosable in company proxy statements. In perhaps the most impactful part of the SEC rule, companies will have to adopt clawback policies not just for so-called "Big R" restatements, which require immediate correction, but also "little r" restatements that only need to be disclosed in the next annual report. The SEC noted that the latter might not impact shareholder value, but could have the had a material impact in the next or future reporting periods. As a result, corrections won’t be considered "just in time" if they've already made it into public filings.

Some groups had opposed that change, including the Society for Corporate Governance, which said in June that "The burden on companies to recover compensation from executives after non-material little r restatements would be grossly disproportionate to the comparably minor circumstances that contribute to these revision restatements," adding that "including revision restatements in the clawback rule could create an incentive for some companies not to pursue non-material corrections to their financial statements."

But it delighted the Council of Institutional Investors (CII), which pushed for its inclusion and provided Insightia with a statement to the effect that, "By establishing a common floor for clawback policies at listed companies that includes both Big R and little r restatements, we believe the final rule will strengthen the transparency and quality of corporate financial statements as well as the accountability of corporate executives to their investors."

Of course, financial restatements big or small are a narrower range of justifications for clawbacks than some companies allow. A 2019 survey by Meridian Compensation Partners suggested that 36% of clawback policies then in effect would be triggered by ethical misconduct, 20% by violations of covenants such as non-competes, and 15% by reputational risk.

CII's latest executive compensation policy states that boards should be able to claw back executive incentive compensation "in the event of acts or omissions resulting in fraud, financial restatement or some other cause the board believes warrants recovery, which may include personal misconduct or ethical lapses that cause, or could cause, material reputational harm to the company and its shareholders."

So, there is plenty of scope for companies to go beyond what the SEC is proposing, while clear satisfaction in some quarters that the SEC has got its way.

As Chair Gary Gensler said following the vote this week, "I believe that these rules will strengthen the transparency and quality of corporate financial statements, investor confidence in those statements, and the accountability of corporate executives to investors."